About the author

Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan's Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

The ‘Dakota Model': Oil-rich North Dakota led the country in 2012 with an eye-popping 13.4% real GDP growth rate

The BEA reported today on Gross Domestic Product (GDP) by state for 2012; here are some highlights:

1. Real GDP increased in 49 states and the District of Columbia in 2012, at an average national rate of 2.5%, following a 1.6% increase in 2011. Connecticut was the only state that experienced negative growth in real GDP last year at -0.1%.

2. Not surprisingly, the “economic miracle state” of North Dakota led the country last year with an eye-popping growth rate in real GDP of 13.4%, more than five times the national average of 2.5%, and almost eight percentage points higher than No. 2 Texas’s growth rate of 4.8%.

3. The 13.4% growth in North Dakota’s GDP last year was almost double the state’s 7.2% growth in 2011, and was the highest state GDP growth rate ever recorded in the BEA’s 25-year history of state GDP statistics back to 1988, except for a 14.1% growth rate for Oregon back in 1996.

4. On a per-capita basis, North Dakota also ranked No. 1 in the country with a 10.8% increase in its 2012 per-capita real GDP, compared to a 1.7% national average, and 3.27% increases for both Texas and West Virginia (tied for No. 2). The Peace Garden State’s 10.8% increase in real per-capita GDP last year was also the highest increase ever recorded by the BEA since 1988, except for a 11.9% increase in Oregon’s real per-capita GDP growth in 1996.

5. Every one of the 11 individual economic sectors tracked by the BEA in North Dakota registered positive growth in 2012, with the state’s mining sector making the greatest contribution at 3.26% (and almost 25%) of the state’s total 13.4% growth last year. Strong growth in other state sectors in 2012 included construction (1.32%), wholesale trade (1.54%) and transportation (1.77%). The chart above shows how the state’s booming oil production at record levels has contributed to a booming state economy, with record-setting growth in state real GDP.

6. Other states with booming energy sectors also experienced above-average growth in state GDP last year, including No. 2 Texas (4.8%), No. 7 Utah (3.3%) and No. 10 West Virginia (3.3%).

7. In a previous release on state personal income, the BEA reported in March that North Dakota led the country with the highest gain in state personal income for 2012 (12.4%) and the largest increase in per-capita state income (9.8%).

MP: As I have reported previously, North Dakota’s economic success goes beyond its well-publicized shale oil prosperity, which is being supplemented by other booming sectors including manufacturing, tourism, advanced manufacturing, information technology, and agriculture. The state’s pro-business climate should get some of the credit for the impressive output and job gains over the last several years, including leading the country in real GDP growth in 2012 at an eye-popping13.4%. Whatever North Dakota is doing, it’s working, and the state should be a nationwide model for economic development and job growth — call it the “Dakota Model.”

Discussion: (12 comments)

while north dakota has undoubtedly been enjoying a boom, i think we may need to be a bit careful with prescribing the “north dakota model”.

clearly, they have done a number of things right, but a model that starts with “find a massive amount of a valuable resource in the ground” and then leads to “enjoy the trickle down effects of the new wealth” is not going to be useful for everyone.

try as they might, this will not work in vermont. this model does not seem applicable nationwide any more that telling haiti to act like kuwait would be.

If you’re very average on Basketball it’s no point in trying. It’s much better to maximize what you ARE good at, this is the point of Ricarco’s theory of the comparative advantage.

And by the way, if you discount North Dakota and Texas, the two-fastest growing states(in large part because of an oil boom, not exactly easy to copy for other states) the next three fastest-growing states were Oregon, Washington and California. All solid deep-blue states.

None of them have the crutch of a gift from nature in terms of massive oil for exploitation.

And California is ranked dead last for ease of doing business, remember?

Oregon and Washington, not exactly the parable of business-friendly states either yet if you discount the “American OPEC states” as I’d like to call them, who rely on oil, the picture you get is a lot different than the propaganda you usually hear.

I was going to make the same point as morganovich. It’s great that ND is a gusher, but let’s not conflate this with an economically sustainable model for other states. The big growth is going to come from information and services, or coming up with substitutes for these old-fashioned technologies eventually, not from digging oil out of the ground. It’s great that we have ND to tide us over in the meantime, because job growth in information and services is certainly nowhere where it needs to be yet, but this fracking boom is a one-off, nothing more.

Clara, Oregon, Washington, and California don’t “have the crutch of a gift from nature?” What about being situated on the coast with idyllic terrain, so that a bunch of wannabe hipsters and “innovators” flock there for the nice weather while dumping a bunch of VC money down the drain? All those states are about to fall off a cliff, as the tech market widens and globalizes, or TV and movies in Hollywood get destroyed by the internet, not to mention their horrible business-unfriendly policies. There’s already a big sucking sound as people leave for more business-friendly adjacent states, that’s about to be greatly amplified.

it’s an accident of geography and primarily testament to the fact the if the land is beautiful and fertile enough and the weather is good, educated young people will flock there in spite of bad government and high taxes.

clara-

i think a simple thought experiment here may prove enlightening.

let us imagine that we took the governmental polices of north dakota and applied them to califiornia and vice versa.

what would happen?

california would boom and ND would crumble back into poor, empty badlands.